The internet is tricky when it comes to contract formation. Many of us enter into contracts or think we enter into contracts multiple times a day. Every time we use something or download something the provider is attempting to bind you into a contract…
How do you know if you have successfully entered into a binding contract? Here are some guidelines:
- Shrink-wrap contracts – occur when due to space limitations, the only way to include all of the terms of a contract is to separate some of the terms and enclose them within the packaging. So maybe you purchased something online, usually software, and when it arrives there are series of terms in the packaging that were not provided at the time of sale.Whether shrink-wrap licenses are legally binding differs between jurisdictions, though a majority of jurisdictions hold such licenses to be enforceable. “[Shrink-wrap] licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general.” Usually this means if there is no point for you to agree to the terms then the contract is unenforceable. Software licenses are commonly ruled enforceable because it was necessary for the customer to assent to the terms of the agreement by clicking on an “I Agree” button in order to install the software.
- Browse-wrap contracts – display the terms and conditions of a contract somewhere on a webpage but do not require the customer to acknowledge the terms.Browse-wrap contracts are generally held to be unenforceable because there is no agreement by the user. When this situation was taken to trial the Court identified two central issues: (i) a lack of notice of the contractual terms, and (ii) unambiguous manifestation of assent or agreement.
- Click-wrap contracts – require customers to click an “I Agree” button on the website in order to access website features or use software. Click-wrap contracts are typically held to be enforceable, however a court’s analysis of these types of cases depends heavily on the specific facts of each case. Focus is on the actions of user and asks whether there is an explicit or implicit acceptance of the additional licensing terms
Notice of the terms and assent or agreement are the key elements to determining if an enforceable contract has been entered. If you are not given notice of terms and the opportunity to easily back out if you do not agree there is likely no contract. When determining if notice was given courts will consider the following:(1) whether the terms are obvious, (2) the course of dealing between the company and the customer, and (3) industry practices.
Additionally, if you have not agreed to the terms there is likely no contract. Whether “reasonable people in the parties’ positions would understand [the actions] to be assent” is the standard used by courts. Therefore, if a “reasonable person” wouldn’t think that the actions taken would equate to agreement, then there is likely no contract.
What, how, and when terms appear and if your actions can be considered agreement are important if trying to determine if a contract has been formed. It is common for additional terms to be the start of a new and also binding contract, so be aware that each interaction can form a new contract that you are obligated to uphold.
- Companies must clearly provide notice of additional terms
- Parties must clearly agree to additional terms
- Customers should expect additional terms as part of the initial contract formation event. Courts will apply a reasonable person analysis to both the terms of the contract as well as the method used to notify the customer of the additional terms.
Contract formation is a determination made by the court, these are merely guidelines. Read everything you agree to and be aware of the site or company’s policies so you know your potential obligations.